It hasn’t been an easy road to recovery for many restaurant owners since the pandemic hammered their businesses. They’ve dealt with inflation, supply chain issues, labor shortages, and the fallout from remote work, among other hurdles.
Another curveball was thrown into the mix for Seattle restaurants in January, when Uber Eats and DoorDash added a substantial $5/order fee for consumers in response to a new minimum pay legislation for drivers. Demand immediately dropped.
As the Seattle City Council prepares to vote Tuesday on revised legislation that would lower the existing minimum wage law — following heavy lobbying by the companies — we spoke with restaurant owners to learn about the impact of tech-fueled delivery platforms and the recent driver pay controversy on their operations. (Editor’s note: The council postponed the vote)
Michelle Braash, co-owner of three restaurants in Seattle, said she pulled the plug on delivery apps this year after demand dipped.
Between commission fees, inconvenient bookkeeping, and what she describes as lack of support from the tech platforms, Braash said it just wasn’t worth it any longer.
“We’re happier without it,” she said. “We have our own online ordering system. And we just tell people to order from that and come on in and pick it up.”
But for others that rely more heavily on delivery, it’s not as easy to let go.
Business from delivery orders at Indian street food joint Spice Waala is down 30 to 40% through the first five months of 2024, compared to the year-ago period.
For a small business with tight margins, the impact from lack of delivery activity can have serious consequences.
“The revenue that used to come in was very valuable to afford the wages and benefits that we were paying our employees,” said Uttam Mukherjee, co-owner of Spice Waala.
Forking over fees
Mukherjee pointed to another change that’s impacting his bottom line: the fees that the tech platforms charge restaurants.
He said some of his recent marketing costs paid to Uber, which can help restaurants increase visibility on the apps, “have gone through the roof.”
Seattle lawmakers passed legislation in 2022 forcing delivery companies to cap their commission fees at 15%, building off a fee cap regulation implemented during the pandemic.
However, companies can take a larger cut if restaurants purchase additional, non-delivery services, such as marketing.
“As the net profit margin for many restaurants is about ten percent and can be as low as three to five percent for full-service restaurants, these fees can drastically impact restaurant profits,” Seattle City Council staff wrote in a memo in 2022. “Further, some restaurants have limited bargaining power to negotiate lower fees due to the restaurant’s size and the limited number of food delivery platform companies in the marketplace.”
U.S. senators specifically called out the “huge fees” charged to restaurants by companies in letters sent to Uber and DoorDash last month.
Some restaurants increase prices of menu items on delivery apps so that they can account for the commissions — though the platforms have pushed back on this practice, according to a recent report from The Wall Street Journal.
Mukherjee has explored other delivery options, including hiring his own drivers, but they don’t pencil out financially.
“We have to rely on the delivery companies to be part of the ecosystem, because that is where our customers are,” Mukherjee said.
DoorDash and Uber Eats are the top two food delivery companies in the U.S., respectively, and together make up 90% of the market, according to Bloomberg Second Measure.
Uber’s delivery business, which includes Uber Eats, reported a 4% year-over-year increase in revenue to $3.2 billion for the first quarter, with adjusted profits of $528 million, up 83% year-over-year.
DoorDash set quarterly records for orders and revenue in the first quarter of this year, reporting $2.5 billion in revenue, up 23% year-over-year, with a net loss of $25 million.
Owners at odds over wage law
Delivery apps “became a bit of a lifeline” during the pandemic, said Jonah Bergman, owner of Bait Shop, a nautical-themed bar and restaurant in Seattle.
“All of a sudden, we had a new revenue stream that we didn’t have before,” Bergman said.
The pandemic sparked a permanent shift in consumer habits toward delivery apps, said Damiana Merryweather, co-owner of Bok a Bok, a fast casual fried chicken restaurant with four locations in the Seattle area.
Delivery orders make up 60% of the company’s sales, Merryweather said. They give Bok a Bok a way to generate revenue and get through inventory, particularly during slower hours.
Sales at Bok a Bok fell by 20% in January when the new fee went into effect.
At a recent City Council meeting, Merryweather spoke against the new legislation, which lowers the minimum wage standard for drivers from $26.40 to $19.97 an hour.
“Do not roll back wages,” she said at the meeting. “Instead, reign in corporate greed.”
Merryweather wants her restaurant to eventually eliminate reliance on external delivery apps. Bok a Bok recently began using its own delivery drivers as part of a test at two locations.
Merryweather is one of just a few restaurant owners to speak at City Council meetings over the past several months. Another owner, Becky Yoshitani of a quick service restaurant in South Lake Union called Hurry Curry, asked the council to approve the new legislation “to prevent more irreversible economic damage to the restaurant industry in Seattle.“
Seattle Latino Metropolitan Chamber of Commerce, which counts several restaurant owners as members, plans to speak in support of the new legislation at Tuesday’s meeting.
Spice Waala’s Mukherjee sent a letter to council members in March detailing the impact of the decreased demand on his business. But he said no one has reached out to him.
“We know that the reason why we’re not hearing from a lot of restaurants in public comment is because they’re busy trying to run the restaurants,” Seattle City Council President Sara Nelson, who introduced the new legislation, said at a recent committee meeting. “It’s very difficult to corral small business owners to come and give public comment.”
Merryweather said the debate over driver pay is complicated, and goes beyond just raising or lowering a minimum wage. She thinks restaurants aren’t being heard.
“Sometimes the biggest frustration is the questions that don’t get asked by policymakers,” she said. “And I feel like this conversation, as it has iterated right now, is really emblematic of that.”
